Sorry, let me restate that more clearly:

"Price has also increased."

So the ratio between price and difficulty really has not changed much since December and in fact is higher than average.  Saying that it doesn't make sense to mine any more because the difficulty has gone up so much is wrong given that the price has gone up even more.

This does not mean that you should (or should not) buy mining hardware. 

It also does not mean prices are (or are not) going to increase in the future.

Notice that this sucks for the pool even though some of these people aren't even doing it in order to game the system.  They just feel like the pool isn't paying out very well so they want to try something else.  People are going to hop from a pool with the unexploitable score system if the round is really long, but at least in that case it won't hurt the people who don't jump.

You are only looking at part of the equation.  Price is also increasing.  Last year it took 10,000 BTC to buy a pizza.

The BTC you can mine in a day are actually worth more $ than before, despite the difficulty increases.  

http://forum.bitcoin.org/index.php?topic=7427.0

At some point there will be an issue of electricity costs, but we aren't there yet, and many people don't pay for electricity or have very low rates.

If you are smart and efficient you can make as much money mining as almost any time since December.  Note that money made by mining and then holding the BTC while their value increased does not count as mining profit.

You can probably detect it statistically from the distribution of block times for the pool.  If there is pool hopping then there should be a longer tail.  In the extreme case (which obviously doesn't happen) once a block takes too long everyone hops out and the block never finishes (infinite block time).  I don't know for sure there is enough data to make a strong statistical inference on this, but I would guess there is.

I would bet every BTC I own that there is pool hopping happening on at a fairly large scale, and people have automated it.  And I agree that the way things are structured now the pools don't have a huge incentive to do anything about it. The best thing to do is avoid pools without good defenses. 

Right, either explicitly via exchanges or implicitly.

People can implicitly invest in BTC by mining them and holding them or accepting them in trade and holding them. I would guess that mining and holding is by far the largest component of this, but I don't really know.

It is at least possible this never happens (or at least not for a long time) because there are ways of producing BTC at essentially zero cost, such as botnets.

Post or PM your namecoin address and send 1 BTC to 17KbCPJuvzfaXWctQ5VNyhJsywg5nF2WEX.  Then I will send 450 namecoin to you.

Bitcoin is more like a trading market where there is no fixed set of "suppliers" and "customers."  There are buyers and sellers, and any given trader can move from one side to the other at various times without needing to build a factory or something.  Cheap mining does not increase supply much in the traditional sense, but it does decrease demand, because would-be buyers can mine instead (substitution).  

Cheap mining does increase supply somewhat, because difficulty increases as mining increases.  But difficulty is calculated in hindsight, so with increasing mining the block rate goes up.  Of course there is a fixed total supply of BTC so any increase in the block rate now means a decrease in the block rate at some point in the future.

More or less correct analysis, which I've pointed out in reason #5 here:

http://forum.bitcoin.org/index.php?topic=9944.msg142929#msg142929

I will add that expected difficulty increases should not affect price (since they should already be included factored into the price set by speculators) but when difficulty increases unexpectedly that should affect price.


http://forum.bitcoin.org/?topic=7427

I don't think it is possible to work with different browsers right now because only Firefox has a WebCL plugin.

He may not know this thread is here.  I'll post on his thread to let him know.

EDIT: looks like Luke-Jr did that already.

Most certainly not the only price driver.


How much computation is required (on average) to solve one block.


Well you can't eat them so sure it's (almost) all investment.  There is some trade going on too, and even a bit that is increasingly closed loop.  There are people doing services for BTC and then using those BTC to buy stuff, etc.  Of course this is still fairly small in absolute terms, but I would guess the rate of growth is really high. Some people are probably using it for near-costless money transfers instead of checks, bank transfers or cash, especially if the recipient wants BTC anyway.  

Over time international transfers should be big.  Doing those with banks can be really inefficient.  

I don't think it's an attack on Bitcoin.

I'm not sure I agree difficulty is going to increase by 100x in two months.  I do think it's going to increase a lot though.

Right, but I'm saying that level is much higher. 

People are going to continue to mine at much higher difficulty levels, even if that means botnets.

Production cost doesn't mean anything, but replacement cost does.

You can't take a piece of paper and turn it into a dollar, but you can take electricity (and computers) and turn it into BTC.  But even then, you can't do it right now (assuming you want BTC now) and you can't do it in unlimited quantity, so it's only an imperfect replacement.

It depends what expectations are going to be in two months.  I don't want to be too circular about it, but unless you base your analysis on value going all the way out, you can't really remove future expectations from the equation.

Some have made the argument that there is a potentially long growth curve ahead for Bitcoin in terms of usefulness.  If it captures even a small portion of funds transfers, or even just a good share of the underground economy that could be a lot of value compared to now when it's all pizzas and alpaca socks.

He's right about deltaT though.  It's going to be really hard to keep the room at a reasonable temperature when it's 35+ outside.  One approach is to just plan for a bit of downtime when it gets too hot. 

Well, sure.  The price of any liquid asset is based on a speculative assessment of its future value.  A less loaded word would be  "expectations." 

It's a bit like looking at a stock in terms of book value.  That's one measure of fundamental value.  But future earnings (or dividends) are another measure, and the two often diverge. 

I guess I could add a #6, although it's somewhat included in #5.

6. Competing crypto-currencies are seen to fail.  If it turns out that Bitcoin has too great of a first mover advantage (or less likely that it is indeed the ideal design for a crypto-currency) and other crypto-currencies are unable to compete successfully against it, then the threat of something replacing Bitcoin and making BTC worthless or near-worthless is reduced.